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Draghi urges governments to solve debt crisis, says ECB cannot

The European Central Bank (ECB) President Mario Draghi reacts during the monthly news conference in Frankfurt, February 9, 2012. REUTERS/Ale
The European Central Bank (ECB) President Mario Draghi reacts during the monthly news conference in Frankfurt, February 9, 2012. REUTERS/Ale

AMSTERDAM (Reuters) - European Central Bank President Mario Draghi on Monday put pressure on governments to push ahead with plans for closer European integration to address the euro zone crisis' core problems.

He said that was not something the central bank could do.

The ECB bought euro zone governments time to bring down debt levels and boost competitiveness with a new bond purchase program it launched in September, but plans for closer European integration have hit difficulties.

Germany dealt a blow to plans for a banking union at an informal meeting of European finance ministers last week, saying the project would require changes to European Union treaty.

Speaking to university students in Amsterdam, Draghi said that the euro zone's economic problems still loomed large and that calls for more action by authorities were understandable, but there were limits to what the ECB could do.

"Let me be clear: Undertaking structural reforms, budget consolidation and restoring bank balance sheet health is neither the responsibility nor the mandate of monetary policy," he said in the speech text.

The ECB could not substitute for actions that others, including the private sector, had to take, the Italian added.

Although there was a decrease in fragmentation in the financial markets, the ECB's very accommodative monetary policy was only partly passed on to the financing conditions faced by firms and households in some euro area countries, Draghi said.

Small- and medium-sized enterprises (SMEs), the backbone of the euro zone economy, are particularly hard hit by this development and the ECB is studying options to address the issue, but it has made clear that others must act, too.

Draghi reiterated that governments and supranational institutions like the European Investment Bank could help banks carry the risk of lending to SMEs, something fellow ECB Executive Board member Benoit Coeure had also suggested.

Coeure said last week that the ECB had "no magic wand" to revive lending to small companies, but that it would make sure banks had sufficient access to funding.

Draghi highlighted that progress was underway for deeper integration in banking, fiscal, economic and political sectors, but efforts should not stall, especially with regard to the planned banking union.

The Single Supervisory Mechanism (SSM) for banks under the roof of the ECB marks the first step to such a union, which also foresees a single mechanism to wind down banks, a resolution fund and possibly a single deposit guarantee scheme.

"I would like to stress the importance of quickly complementing the SSM with a Single Resolution Mechanism," Draghi said. "This is necessary to guarantee timely and impartial decision-making, particularly in the cases where cross-border resolution is required."

"What's more, a Single Resolution Mechanism is essential to ensure that the SSM's supervisory decisions for resolution can be followed up with action, without reinforcing the vicious link between banks and sovereigns," Draghi said.

(Reporting By Paul Carrel and Sara Webb, Writing by Eva Kuehnen and Sakari Suoninen Editing by Jeremy Gaunt.)

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